AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 1233
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....king payments to hospitals on behalf of the insurance companies for the treatment of the policy holders. There was a survey u/s 133A of IT Act on 20/10/2009 and it was fond that no TDS has been made on such payments to hospitals. After considering all the facts, the Assessing Officer finalised the order u/s 201(1) and 201(1A) raising a demand of Rs. 19,66,218/- u/s 201(1A) of I T Act. Subsequently, the penalty proceedings u/s 271C were initiated by the Assessing Officer and levied penalty of Rs. 3,27,70,364/- which is a sum equal to the amount of tax which the assessee failed to deduct u/s 194J of I T Act. 4. Against the order of the Assessing Officer, the assessee went in appeal before the CIT (A). Before the CIT (A), the assessee raised the additional ground which was admitted by the CIT (A) for adjudication. Against this admission, the learned DR submitted that the CIT (A) should not have admitted the additional ground. The additional ground reads as follows:- 1. The appellant begs to place before the Hon'ble CIT(A) following additional grounds in addition to the grounds already mentioned in the grounds of appeal: a. The action of the Addl. CIT, Range-15, Hyderabad in assumin....
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....ound raised. Further, the additional ground raised by the assessee has been admitted by the CIT (A) in view of the Hon'ble Supreme Court's decision in the case of NTPC vs. CIT 229 ITR 383-387. After going through the order of the CIT (A) and considering the totality of facts and the circumstances of the case, we do not find any infirmity in the action of the CIT (A) for admitting the additional ground raised by the assessee. Being so, we confirm the order of the CIT (A) on this issue. 6. With regard to second ground, the learned DR submitted that the CIT (A) should not have deleted the penalty levied u/s 271C of the Act. It is submitted that the assessee did not place any material to show that there was reasonable cause for not deducting TDS except stating that as per their opinion, no tax was deductible. If this reason has to be considered as reasonable cause, then there is no relevance of penalty u/s 271C. According to the learned DR, the statement made by the assessee is general in nature and should not be considered. Further, he submitted that the CBDT Circular No. 8 of 24th November, 2009 clarified the position and not laid down any new obligation on the part of the assessee.....
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....e assessee is not treated as assessee in default for the purpose of section 201(1) of the Act" 9. The Assessing Officer placing reliance on the judgement of Hon'ble Supreme Court in the case of Hindustan Coco Cola Beverage Pvt. Ltd. vs. CIT (163 Taxman 365) wherein it was observed that the assessee is liable to deduct tax u/s 201(1A) which is mandatory in nature and treated the assessee as 'assessee in default' in respect of TDS amount liable for deduction. According to the learned AR until and unless the assessee is treated as assessee in default, 271C penalty cannot be levied. Further, he submitted that section 271C penalty for default in deducting tax should be levied, a sum equal to the amount of tax with such person failed to deduct TDS. According to the learned AR the assessee was not treated as a defaulter in respect of deduction of TDS itself. Being so, there is no scope for levying any penalty u/s 271C of the Act for not deducting TDS. Further, he submitted that the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (293 ITR 226) wherein it was held that the assessee cannot be treated as defaulter if the recipient of the income has already paid t....
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....r s. 271 C. Besides interfering with the quasi judicial discretion of the Assessing Officer or, as the case may be, the appellate authority the direction which has been issued by the Board would foreclose the defence which is open to the assessee under s. 273B. By foreclosing a recourse to the defence statutorily available to the assessee under s. 273B, the Board has by issuing such a direction acted in violation of the restraints imposed by the provisions of sub-sec.(1)of S. 119. To that extent, therefore the circular would have to be set aside and is accordingly set aside. In making assessments or, as the case may be, m passing orders on appeals filed under the Act, the AOs and the CIT(A)s shall do so independently and shall not regard the exercise of their quasi judicial powers as being foreclosed by the issuance of the circular .' In the case of Vipul Medicorp TPA Pvt Ltd & Ors Vs CSDT & Anr (245 ITR 125) the Hon'ble Delhi High Court observed as under:- "However, the circular proceeds to postulate that a liability to pay a penalty under s. 271C will be necessarily attracted for a failure to make a deduction under s. 194J. To this extent, the impugned circular is liable to be ....
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....Thus the AO did not record any satisfaction with regard to initiation of penalty proceedings u/s. 271C of the IT Act. 12 However, the Addl. CIT in the penalty order u/s. 271C of the IT Act dated 29.9.2011 observed that the assessing officer had proposed for initiation of penalty proceedings u/s. 271C of the IT Act but the order u/s 201 & 201(lA) does not lend support for such assertion in the absence of any such recording. 13 In the absence of recording of any satisfaction or indication with regard to initiation of penalty proceedings u/s. 271C of the IT Act in the order u/s 201 & 201(lA) for the asst. year 2009-10, it cannot be said that the proceedings were initiated validly. 14 As the facts and circumstances are similar for both the asst, years 2008-09 and 2009-10 there Is no scope for persuasion of proceedings u/s. 271C for the asst. year 2009-10 for the reasons mentioned In detail. 15 The Addl. CIT, Range 15, Hyderabad issued show cause notice u/s. 271C of the IT Act on 21.03.2011. 16 The Add!. CIT, Range 15, Hyderabad passed order u/s. 271C of the IT Act on 29.09.2011. 17 In view of section 275(1)(C) of the IT Act the show cause notice issued on 21.03.2011 u/s. 271C is ....
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.... considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow. ............." 12. In the case of CIT vs. vs. Vishwapriya Financial Services & Securities Ltd. (303 ITR 122) the Madras Court held as under:- "The reasonable cause involved m the present case is that the assessee acted in a bona fide manner on the basis of the opinion obtained from senior counsel before devising the scheme that the assessee need not deduct tax at source. On this consideration, the Tribunal held that it is not a fit case for levying penalty. The Tribunal has accepted the explanation and given a finding that there is a reasonable cause for not deducting the tax at source. The finding that there is a reasonable cause is only a question of fact and also it is not perverse. Hence, the Tribunal is Justified In deleting the penalty levied under s. 271C" 13. In the case of CIT Vs Cadbury India Ltd (55 DTR 318) the Hon'ble High Court of Delhi held as under:- "It is a settled law that what would constitute reasonable cause cannot be laid down with precision and that the question as to whether there was reasonable cause or not for the assessee not to d....
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....hat if any person fails to deduct the whole or any part of the tax as required by the provisions of Chapter XVII-8 then such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct. Thus s. 271C(1)(a) makes it clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. This provision cannot be held to be mandatory or compensatory or automatic because under s. 273B Parliament has enacted that penalty shall not be imposed in cases falling there under. Sec. 271C falls in the category of such cases. Therefore, the liability to levy of penalty can be fastened only on the persons who do not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. In the instant cases non-deduction of tax at source took place on account of controversial addition. The concept of aggregation or consolidation of the entire income chargeable under the head "Salaries" being exigible to deduction of tax at....
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....see. In support of such submissions, the learned AR for the assessee relied on the following case-laws. i) Jagran Prakashan Limited vs. DCIT (345 ITR 288) (All) ii) CIT vs. I Excel Industries Limited (358 ITR 295)(SC) iii) No citation (118 ITD 326 at 329) iv) Union of India and others vs. Godfrey Philips India Ltd. And others (158 ITD 574) v) CIT vs. Eli Lilly and Co. (I) Pvt. Ltd. (312 ITR 225) (SC) 19. We have considered rival submissions of the parties and perused the material on record and orders of the authorities below. According to the assessee's counsel, the assessee is under the bona- fide belief that provisions of section 194J of the Act were not applicable to it and it was only after the CBDT came out with circular No. 8 of 2009 dated 24.11.2009 regarding applicability of the said circular to TPAs that it became aware of the applicability of the provisions to it. In our opinion, we find force in the argument of the assessee's counsel. As seen from the preamble of the circular No. 8 of 2009 dated 24.11.2009, wherein the CBDT clarified applicability of the provisions of section 194J to the case of TPAs which is as follows: "A number of representations have been rece....